Morowali Nickel Exports Plummet to Zero, Supply Tightening Positively Impacts Nickel Stocks
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Morowali Nickel Exports Plummet to Zero, Supply Tightening Positively Impacts Nickel Stocks
UBS high-frequency data shows Indonesian core park nickel exports plummeted to zero, compounded by sulfur shortages and power reallocation, further tightening Class II nickel supply. Maintaining Buy ratings on INCO and ANTM.
- NPI and ferronickel exports from Morowali Park (IMIP) dropped to zero from May to early June 2026
- Power shift from nickel smelting to aluminum smelting is the primary reason for the export plunge
- Class I nickel conversion to stainless steel increases, further squeezing Class II nickel raw material supply
- HPAL projects cut production due to sulfur shortages and loss risks
- Red mud ore price decline may limit upside potential for NPI prices
- Pyrometallurgical process cost advantage becomes prominent, supporting Class I nickel price floor
- Maintaining INCO as preferred pick over ANTM, optimistic about earnings growth
Report interpretation
Overview
UBS, using proprietary real-time port tracking data, found that nickel pig iron (NPI) and ferronickel exports from Indonesia's Morowali Industrial Park (IMIP) plummeted to zero between May and June 7, 2026, drawing market attention to structural supply changes. The report analyzes that this was mainly driven by power resource reallocation toward aluminum smelting and Class I nickel substitution in the stainless steel sector. Although red mud ore price declines may limit short-term price gains, overall supply constraints, rising cost curves, and downstream capacity expansion continue to support nickel fundamentals. Based on this, the firm maintains Buy ratings on Vale Indonesia (INCO) and Aneka Tambang (ANTM), favoring INCO as the top pick.
Core views
The core driver behind the export plunge lies in resource reallocation and raw material substitution. First, power supply shifted from Class II nickel (NPI) production to aluminum smelters, which have higher energy consumption and faster return cycles; Qingdao Steel Group reportedly asked Vedanta suppliers to cut production to prioritize aluminum. Second, due to tight Class II nickel supply and scrap steel shortages, stainless steel plants increased their use of Class I nickel. Combined with narrowing cost arbitrage space between Class I and Class II nickel, this further exacerbated Class II nickel market scarcity. Supply-side constraints are expected to persist. Besides smelting permit bans and policy fluctuations, HPAL (High Pressure Acid Leaching) projects face severe challenges: sulfur imports sharply declined, causing Huafly and Huaqing projects to cut production, and at current prices, some HPAL capacities face net loss risks. Meanwhile, with joint ventures between Qingdao Steel and Jinda and potential new capacity from Zhen Shi coming online, Indonesia’s stainless steel production outlook remains positive, creating additional demand for Class II nickel and further tightening market balance. Price and cost dynamics show mixed signals. Although Class II nickel supply is tight, NPI/FeNi price increases remain moderate, largely affected by weekly declines in red mud ore prices due to expectations of relaxed RKAB quotas and weak macro sentiment. The report estimates that pyrometallurgical Class I nickel production costs bottom out around $17,500 per ton, lower than wet-process HPAL’s ~$20,000 per ton. As HPAL supply shrinks, the market may rely more on pyrometallurgical routes, potentially compressing Class I nickel cost ranges.
Analysis framework
The report adopts a unique high-frequency alternative data analysis framework, leveraging its own real-time port trackers to monitor cargo throughput at key ports like Bungku, capturing trade flow anomalies earlier than official monthly data. On this basis, it cross-validates upstream and downstream industry logic: comparing sulfur/sulfuric acid import declines to confirm HPAL production cuts, analyzing power allocation priorities to explain NPI shutdowns, and tracking stainless steel exports and new capacity launches to project future raw material demand gaps. This approach, starting from logistics high-frequency signals and combining process economics (such as pyro vs. wet-process cost floors), builds a leading indicator system for identifying supply-demand turning points.
Methodology notes
Difference in Cost Floors Between Pyro and Wet Processes
The report notes that pyrometallurgical Class I nickel production costs bottom out at around $17,500 per ton, significantly lower than wet-process HPAL’s ~$20,000 per ton. When high-cost HPAL exits due to losses or raw material shortages, marginal supply costs fall, meaning price support levels could move lower—a key anchor point for determining commodity price bottom ranges.
Constraint Transmission from Key Auxiliary Material (Sulfur) to Main Product Supply
Sulfur is a critical consumable for HPAL processes producing battery-grade nickel. By tracking sharp declines in sulfur imports, the report anticipated forced production cuts in downstream HPAL projects ahead of time. In complex manufacturing industries, bottlenecks often lie not in the main mineral itself but in overlooked auxiliary supply chains—a powerful perspective for identifying hidden supply shocks.
High-Frequency Alternative Data (Real-Time Port Tracking)
Rather than relying on lagging official customs data, the firm uses its own port trackers to monitor shipments at ports like Bungku in real time. This high-frequency alternative data can reveal dramatic fundamental shifts (such as export halts) weeks earlier than traditional financial reports or monthly data, providing a significant information time advantage for investment decisions.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Vale Indonesia Tbk (INCO.JK)Top Pick, benefiting from solid nickel fundamentals and earnings growth expectations
- Strengths
- Complete earnings growth outlook, relatively controllable project execution risks (upstream JV risks lower than downstream)
- Weaknesses
- Exposure to HPAL project ramp-up failures or FeNi project delays
- Comparison
- Outperforms ANTM, ranked as Top Pick
- Risks
- Nickel prices below expectations, rising energy costs, Fed rate hikes, downstream project delays
- Aneka Tambang (ANTM.JK)Recommended Pick, benefiting from dual nickel-gold business support
- Strengths
- Diversified business, covering both nickel and gold assets
- Weaknesses
- Potential participation in low-IRR 'national service' projects, higher financing costs
- Comparison
- Second to INCO, yet maintains Buy rating
- Risks
- Gold and nickel prices falling, rising energy costs, slowing domestic gold supply growth
Key data
- IMIP NPI/Ferronickel Export Volume0 ktData from May to June 7, 2026; April figures were 14.7 kt and 9.3 kt respectively, completely interrupted month-on-month
- Total Indonesian Sulfur Imports137 ktMay 2026 data, down 14% month-on-month and 64% year-on-year, reflecting extreme HPAL feedstock shortages
- Pyro vs. Wet Process Class I Nickel Cost Floor~$17.5k/t vs ~$20k/tPyrometallurgical process costs significantly lower than wet-process, becoming a new price support after supply contraction
- Total Indonesian Refined Nickel Exports134.0 ktNiMay 2026 data, down 18% month-on-month and 20% year-on-year
Impact & implications
For Indonesia’s nickel sector, continued supply tightening and incremental demand from new capacity provide positive fundamental support. Although foreign investors remain cautious due to concerns over policy consistency, local investors have already started rebuilding positions. The report believes that current supply disruptions and cost structure changes benefit leading companies with solid assets and earnings growth potential. INCO, with its project reserves and execution capabilities, is seen as the top pick over ANTM. Even though short-term red mud ore price corrections limit NPI price upside, the overall tight supply-demand situation and rising industry cost center still offer a safety margin for stock prices.
Risks
- Nickel prices lower than expected or stronger-than-expected Indonesian nickel supply
- Successful NPI conversion to ferronickel leads to a rebound in Class II nickel supply
- Government delays in issuing nickel mining permits or HPAL projects coming online faster than expected
- Declining Chinese metal demand or chip shortages dragging EV and nickel demand
- Rising ESG focus on non-coal-based nickel production and bans on non-battery-grade nickel smelters
- Higher gold royalties, implementation of export tariffs, and domestic sales obligations (DMO) price caps
What to watch
- Whether NPI/ferronickel exports from Morowali Park (IMIP) recover and their sustainability
- Changes in profit margin arbitrage relationship between nickel and aluminum prices
- Signs of shortage in stainless steel raw materials
- Weather conditions in Surigao, Philippines, and red mud ore price trends
- Actual pace of relaxation in Indonesian mining quota (RKAB) policies
- Arrival status of sulfur and sulfuric acid at key ports